6 financial products that made the nice list (and 6 that didn’t)

How great would it be if you could get a better return on your savings? What if you could get a rate 300 times higher? Of course that’d be great! Who doesn’t want more money?

But if you just opened a money market account with the local big bank branch, or you signed up for a credit card to get the free T-shirt, you might be leaving money on the table or paying sky-high fees. And even if your account was the best available at the time, product offerings change so often, it’s hard to keep up!

So the editors at Kiplinger kept up on it for you, thoroughly researching the 2012 best and worst banking and credit options for consumers. I recently spoke with associate editor Lisa Gerstner about the financial products that made this year’s nice list, and which ones to avoid like re-gifted fruitcake.

Savings and checking

Is it even possible to get a savings account with a decent interest rate these days? Well, that depends on your definition of decent… But although rates are dismal, some savings and checking products clearly outperform others when it comes to boosting your bottom line.

Money market accounts

“When we looked for the best money market accounts, we wanted somewhere we could leave money and forget it, without worrying about fees and minimum transaction requirements,” says Lisa.

The winner? The Sallie Mae Money Market account, which pays 1.05 percent, a “decent rate right now,” says Lisa. There’s also no monthly maintenance fee and no minimum-balance requirement.

The one to avoid? The Fidelity Tax-Free Money Market, with its sad 0.01 percent interest rate. “You really can’t get worse than that,” says Lisa.

Interest checking accounts

Another way to earn interest is with an interest checking account, although you have to be willing to jump through some hoops.

“If you want a really good rate on an interest checking account, you have to stay on top of things,” says Lisa. “They typically require three or four different types of transactions to qualify for the rate.”

This year, the Lake Michigan Credit Union’s (LMCU) Max Checking account topped the Kiplinger list. At 3 percent interest on balances of up to $15,000, “it had the highest rate I could find,” says Lisa. Although it’s a credit union, anyone in the U.S. can join.

But as with any interest checking account, you have to meet a few requirements to earn the rate, such as making one direct deposit and 10 debit card purchases each month. There are no monthly fees or minimum-balance requirements, and LMCU refunds up to $15 a month in surcharges if you use ATMs outside their network.

“People should also check out their local credit union to see if they’re offering an even better interest checking account,” says Lisa.

So who came dead last in the interest checking category? It was Chase’s Premier account, which pays just 0.01 percent. “Most big banks aren’t going to give much for interest checking,” says Lisa. They’re also going to charge some hefty fees. Chase Premier charges $25 per month in “maintenance fees” if you don’t meet their transaction or minimum-balance requirements.

Online banks

Lisa says the top pick is Ally Bank, which pays 0.4 percent or 0.75 percent for checking, depending on your balance, and 0.95 percent for savings and money market accounts. “The interest rates are competitive, they refund ATM fees, and they don’t charge other fees or require minimum balances,” says Lisa. Ally is also rolling out remote check deposit this year, which Lisa says is “important if you’re using an online bank because you can’t cash checks locally.”

Lisa’s least favorite online bank is Ascencia. “It’s not bad for banks overall, but the $29 overdraft is really high and their rates aren’t very good compared with other online banks,” says Lisa. Ascencia pays 0.22 percent for checking, 0.32 percent for savings and 0.22 percent to 0.53 percent for money market accounts.

Credit cards

Many cards look great, but unless you pay attention, you could get slammed with unexpected fees.

Prepaid cards

“Prepaid cards are tricky,” says Lisa. “Many are fraught with fees, and you may not realize they’re there until after you’ve bought the card.”

So which card was the most consumer-friendly?

“Right as we were going to press, the Newcomer Bluebird Prepaid card from Walmart and American Express came out,” says Lisa. With no activation or monthly maintenance fees, online bill pay, and an app that lets you deposit checks, it was the clear winner. Lisa also likes that you can set individual spending limits for up to four users and make fee-free withdrawals at 22,000 ATMs (only with direct payroll deposit).

Lisa’s pick for the worst prepaid card was the Magic Prepaid MasterCard. Endorsed by basketball giant Magic Johnson, the card comes with some sizable charges: $4.95 to activate the card and a $4.95 monthly fee.

Rewards credit cards

When choosing a rewards card, look for the card that gives back the most, whether it’s in points or cash. But read the fine print, as some rewards cards turn out to be quite unrewarding. “You have to watch out for expiration dates and caps on points,” says Lisa. “It’s also great if you can avoid an annual fee, but if you do pay one, make sure you’re getting your money’s worth in rewards.”

This year the rewards card that offered the most bang for your buck was the Chase Sapphire Preferred card, which offers you two points per dollar on travel and dining and one point per dollar on other purchases.

Points can be redeemed for cash, merchandise, gift cards and travel perks. They offer a $0 introductory annual fee for the first year, after that $95, and “you get a nice chunk of points when you sign up,” says Lisa. Chase Sapphire Preferred currently offers 40,000 bonus points after you spend $3,000 in the first three months from account opening.

A far less rewarding card was the Sony card from Capital One®. “The five-points-per-dollar sounds great, but that’s only if you buy Sony® products,” says Lisa. “You also have to submit a form if you buy those Sony® products anywhere except a Sony® store. It’s just not convenient.” The card also offers 3 points per $1 spent on movie theaters, movie rentals, music downloads and digital streaming and subscription services; and it offers 1 point per $1 spent on all other purchases.

Cash-back credit cards

Blue Cash Preferred® Card from American Express

As a special offer — earn 5% cash back on eligible travel purchases in the first 6 months, up to $200.

Plus, earn $150 back after you spend $1,000 in purchases on your new card within the first 3 months. You will receive cash back in the form of statement credits.

Everyday Cash Back:

6% at U.S. supermarkets, on up to $6,000 per year in purchases (then 1%)

3% at U.S. gas stations

1% other purchases

Terms and limitations apply.

There are no rotating reward categories. No enrollment is required. Cash back is received in the form of Reward Dollars that can be redeemed as a statement credit. You can only earn cash back on eligible purchases.

There is a 0% intro APR on purchases and balance transfers for 12 months, then a variable rate (currently 13.24% to 23.24%) based on your creditworthiness and other factors.

Terms and conditions apply.

“With more food price inflation predicted for 2013, getting 6 percent back on groceries is pretty big,” she says. Although there is a $95 annual fee (as of August 4, 2016), the cash back you can earn using this card to pay for gas and groceries should more than cover the fee.

The worst in the cash-back category was the Discover Motiva. Editor’s Note: This limited-time offer has expired.

“You should be able to get at least 1 percent back with a cash-back card, but the Discover Motiva only pays 0.25 percent on annual spending up to $3,000 and 1 percent after that,” says Lisa. “And although you do get an extra 5 percent back on interest charges, we don’t recommend you carry a balance in the first place.”

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The banking system is just messed up. We give banks the opportunity to use our money (to fund loans and investments) and in return they’re supposed to at least pay a decent interest rate on a savings account. Clearly no longer the case.

It’s actually more corrupt than that. The Federal Reserve prints money and then “loans” it to investment banks at 0% or near 0% interest. The iBanks then just buy Treasuries from the federal government, yielding 1-4%. That’s where their profit comes from: the difference in the yields. We, regular people, don’t have access to these Fed funds. That’s crony capitalism. The government then spends that money on unsustainable programs we all love. So, the government can use the Fed as its piggy bank. Meanwhile, savers, and any wage earners, are crushed by the low interest rates, because the government wants people to spend more. It’s not fair. And production/saving/investment drive the economy, not spending and borrowing.

Lawmakers were smart enough in 1913 to stipulate in the Fed’s original charter that it could not lend money to the government, and could not own government debt, for fear that government spending would get out of control (we were also still on a gold standard). We’re so far past abiding by those that it’s almost comical, if not for the devastation that the US is facing because of our idiocy. No one, except those at the Fed, know how much government debt the Fed owns, because we’re not allowed to audit the Fed! (though there are recent efforts to change this). Also, even if the Fed lends to the government indirectly, ie through an ibank, what’s the difference? If anything, that’s worse, because it means we’re paying for a middle man (those trustworthy ibankers). Economic nonsense.

Notice that NONE of this was discussed during any of the debates (presidential or vp). Americans wanna just hear about jobs, jobs, jobs! Social Security! Healthcare! We’re too intellectually lazy to bother to understand how our economic system “works,” or what the consequences are even when we do understand them.

While ally bank may appear appealing, one word of caution is that prior to its repackaging it was GMAC bank and anyone who got it up the behind from GMAC may not want to deal with their redressed personna. But I’m not harboring bad feelings or anything :-).

I have accounts at both. Started with ING and added an Ally account when they had a better savings rate. I have switched money back and forth depending on who has the better rate, but Ally has been better for some time now. I’ve never had any problems with either of these companies.

You should probably also look at the 5 year CD from Ally. If you need to take your money out, you lose 3 months of interest. If your money makes it to 6 months, you will be ahead in interest even after subtracting the 3 month penalty

Well it’s a great list and helpful, but the problem of course is that to change over to something else requires paperwork, time, patience, and ample time to sit on hold on the phone. I always hate that. I’d prefer to not do that and sit at a $0.10 less-than-I-could-have interest rate.

A year ago I made the switch from BoA to a local credit union. I had been toying with the idea for a while, but the interest rates weren’t that different. But, the credit union down the street from me got bought by a larger one, and now I could get a special savings account that paid a whopping 4% on the first $3,000!!!! FOUR PERCENT!!!!!!! And they offered a no closing cost mortgage re-fi at a good rate – only 0.25 above the regular mortgage rate. That was enough incentive to get me to go through the paper work. And, it turned out it wasn’t as painful as I thought it would be.

My husband and I are sold on Ally bank. So I’m glad it made the nice list! Also, I’ve been wanting a new rewards card for everyday use. That AmEx Blue Cash Preferred card is looking mighty fine. Thanks for sharing this great info.

I agree with you that Ally is a great choice. Not only do they have competitive interest rates, but they have no ATM fees and even offer cash back bonuses if you shop at certain retailers. Sounds like I work for them, but I’m just a fan. :)

Why in the hell would you suggest the Amex Blue Cash PREFERRED card when it has an annual fee and a cap on cashback???? Just get the regular Blue Cash Card that has no cap or annual fee and you get .5% back on all purchases and 1% back for gas, groceries, and pharmacy puchases. It jumps to 1% and 5% after you spend $6500. My husband and I both have cards and we usually hit the $6500 pretty quickly (especially when you can put large items on it like medical bills).
Every year we’ve had the card, we have received over $400 cashback, easily redeemed with a click online and this year was over $600. They also have discounted gift cards available (we got a $100 Outback Steakhouse card for $90).
Skip the preferred and go straight to the regular Blue Cash!!

My Blue Cash gets me 5% on grocery and 5% on gas after 6,500 spent (only 1% before that), but I think my version of the card is an old version. No annual fee and no cash-back caps. Since I use my card for travel for work, it’s not hard to get to 6,500.

We use Ally to “float” money needed for major purchase expenses and infrequent bills (taxes, insurance, etc.). We “pay ourselves” a set amount each week, and then pay for these expenses out of Ally. This has all but eliminted “unexpected” hits to our regular books. I would imagine the same process could take place with any online or physical bank, but we found Ally very easy to set up, and the website is a piece of cake to navigate.

We do the same thing sort of. We have our Emergency Savings with Ally, and our Home Maintenance Account with ING. We transfer the monthly portion of bigger bills that come quarterly, semi-annually and annually to the ING account, along with IRA payments, then we just pay those items out of that account, allowing them to earn interest while floating.

Our Emergency Savings is actually split between $5000 in the savings account and the rest in Ally 5 year CD’s, broken down into $5000 amounts. If we need more than $5000 for an emergency then we cash in a CD. The penalty is 3 months of interest. But if your money makes it to 5-6 months, then you will earn more in interest even with the penalty than you would had you left the money in the savings account. I haven’t had to break one yet, mainly because I always keep $5000 in the savings.

Considering the well-known statistic that people who use credit cards of any kind spend 10-12% more than those who don’t, the best CASH BACK credit card is no card at all or your checking account debit card.

Thanks for bringing this up. Credit cards know what they are doing. They are not giving you free money. They are giving you a teeny tiny bit of all the money you are giving them, plus you are spending way more than you would have otherwise.

Anything that doesn’t keep up with the rate of inflation is a depreciating asset. I look at checking and savings accounts as a safe place to hold my emergency funds that need to be liquid — not as an investment. Anything above the amount I need for monthly expenses plus my emergency fund, I try to put in something that at least keeps pace with inflation, such as a low cost index fund.

I needed a short term place to park money that I knew I would owe at next April’s tax time. I found the best deal to be Ally Bank’s “no penalty” CD — a CD with 11 month term (and 0.95% interest rate currently) which you can terminate any time you want with no penalty. The rate is guaranteed, not floating, but you can get your money when you need it. When it came time to renew it I discovered a bonus: 0.25% additional interest when you renew. If you may want part of your money earlier, you can split your funds into half a dozen CDs, and just cash the ones you need when you need them.

As far as being worried about Ally’s GMAC heritage — keep your deposits under the FDIC limit and they are insured just as they are at any bank. So I have no problems sleeping!

This article lost all credibility when it recommended the Chase Sapphire card. How on earth can you recommend a rewards card that has a $95 annual fee? It is SO easy to find rewards cards that have no annual fee and offer reward that are just as good (or better, depending on your spending patterns).

It’s currently giving $400 (which is $500 toward travel) in cash back for spending $3,000 in the first 3 months. The fee is waived the first year. That means the card is effectively free for over 5 years (6 if used for travel), plus you get 2% on travel and dining, and 20% off travel when you book using points. It’s a fantastic deal if you spend a lot on travel and dining, or even if you’re planning on spending $3,000 in the next three months.

It’s sad that we think 1.05 percent is a “decent rate”. We seem to have set the bar so low that breaking even or making meagre gains is viewed as a good thing. It still sucks when you look at the long-term impact in terms of compounding interest.

I can’t speak to specific products because I’m not in the U.S., but I stopped worrying about what interest rate my checking account pays a long time ago. I saw a greater benefit in avoiding banking fees altogether.

Same here. Looking for yields right now is a bit silly, because you’re going to get paid back in a depreciating currency. Sure, earning 1% is better than earning 0%, but inflation is at 2% according to the government, and probably much higher in reality. So, you’re actually losing money either way.

I love my local credit union (Advantis). Checking account with 3% interest up to $25,000 and they refund ATM fees (up to $25/month). The only downside is that I have to have all my money in one account so it earns the high interest rate, which makes keeping track of everything a little more difficult. I used to have separate accounts for emergency fund, house fund, etc., but now everything is in the one account (though I still track it as if they were separate accounts). It’s definitely worth it, though!

Thanks for this breakdown! This is really helpful information that I’m definitely going to share with my parents so they can take a look at their accounts before the beginning of next year and possibly switch some things around. I love posts like this that provide readers with a clear list of which company does what and which ones are best, very useful.

If you can become a member of Navy Federal Credit Union, their Cash Rewards card has no annual fee, and 1% cash back on everything, and points never expire(they do expire on the nRewards card). Navy Federal has a super powerful internet experience as well.

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